UDF govt. ignored 2014 warning on fiscal crisis

Written By Thulasi Ram | Updated: July 01, 2019 20:17 IST
UDF govt. ignored 2014 warning on fiscal crisis

The previous United Democratic Front (UDF) government is reported to have glossed over warnings of a grave resource crunch that was threatening to snowball into a major fiscal breakdown in 2014, but deferred additional resource mobilisation proposals mooted by officials under political duress.

A Finance Department note that was accessed by The Hindu details the austerity measures and resource mopping proposals put forward for averting a total collapse. This included a staggering rise in retirement age from 56 to 58 years, freeze on recruitment and post creation for a year, expenditure rationalisation, enhancing and monitoring revenue recovery collection and a 26% disinvesment in State-owned public sector undertakings.
It was the precarious fiscal position, when the State slipped into overdraft from September 5 to 12, 2014, after the disbursement of salary, pension and Onam payments and liquidity crunch that prompted the government to task the officials to prepare the note suggesting remedial measures for the consideration of the Cabinet.
The note says that the “position will worsen further during the first week of October 2014. If the State is continuously on overdraft for five days beyond ₹1,072 crore, (the) RBI will direct the agency banks to stop all payments and the treasury will have to be shut down for all payments.”
The real crisis was reported from 2013-14 when the major taxes from four sources, Sales Tax, Excise, Transport and Registration grew only at a rate of 6.8%. The note cautioned that the year-on-year growth for July 2014 was only 9.65%. It had predicted that the treasury was likely to be shut down in the first week of April 2015 itself.
Proposals for raising ₹13,63.61 crore were placed before the Cabinet. Despite being aware of the intensity of the crisis, most of them were turned down and even those adopted were executed in a tardy manner.
The decisions for launching an intense revenue recovery drive by District Collectors and a special drive to vacate stay orders on revenue recovery collections and also on all unconditional stay orders on revenue collection could not be taken up in full swing and many others had to be relinquished under political compulsion, sources said.
The current crisis could also be attributed to the alleged ineptness of the previous government in addressing the situation, sources said.